Car tax changes in 2017 – what do I need to know?

The current system for taxing a new car in the UK will be replaced on 1 April. Here we reveal everything you need to know, and offer advice on whether you're better off buying a new car before the new rules come into force

Words ByDarren Moss

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In summer 2016 former Chancellor of the Exchequer George Osborne announced a radical overhaul of the UK's system for taxing cars, known as Vehicle Excise Duty, or VED. The new regulations come into force on 1 April, and will make some cars much more expensive to run.

What is happening to car tax in 2017?

The amount of VED you pay will still be based partly on your car's CO2 emissions. However, while the government has been trying to push people into hybrid vehicles by making many of them free to tax, the benefit of choosing one will be substantially reduced after 1 April.

New cars will still be divided into 13 different CO2 bands, which will determine how much you pay in the first year of ownership, but only zero-emission vehicles, such as electric cars, will qualify for the lowest band and therefore be tax-free.

From the second year onwards, zero-emission vehicles that cost less than £40,000 new remain tax-free, while a flat rate of £140 a year will be payable for petrol and diesel cars that cost less than £40,000, and £130 for hybrids. All cars that cost more than £40,000 attract an additional 'Premium' fee of £310 for years two to six of ownership, regardless of their emissions.

This means that electric cars which cost more than £40,000 – and currently qualify for free car tax every year – will no longer be the tax-busting option they are currently.

Bear in mind, too, that it's the final list price of your car which determines that £40,000 threshold – if you buy a cheaper model, but add options that take the price over that point, you'll still have to pay the Premium fee. In short, an option costing a few hundred pounds could end up costing you more than £1500 over five years in extra car tax costs.

Even if you negotiate a discount with the dealer that drops the price of the car back under £40,000, you'll have to pay the fee, because the listed price will still be more than £40,000. The list price includes the delivery charge, numberplates and fuel, but not the new car registration fee.

Below, you'll find a full table detailing how much you'll have to pay in the first year, and in the years thereafter.

VED car tax bands for cars registered on or after 1 April 2017

Emissions (g/CO2/km) First year rate Standard rate*
0 £0 £0
1-50 £10 £140
51-70 £25 £140
76-90 £100 £140
91-100 £120 £140
101-110 £140 £140
111-130 £160 £140
131-150 £200 £140
151-170 £500 £140
171-190 £800 £140
191-225 £1200 £140
226-255 £1700 £140
over 255 £2000 £140

*cars over £40,000 pay £310 supplement for 5 years

What are the current car tax rules?

Currently, car tax is determined solely by CO2 emissions, with the value of the car not taken into account. Cars that emit up to 100g/km of CO2 attract no tax at all, and cars that emit between 101-120g/km of CO2 attract only small amounts. It's not until you get to 121g/km of CO2 that you start to pay significant amounts ofcar tax.

You can find full tables for the current car tax rates by clicking here.

Should I wait until 1 April 2017 to buy my new car?

The new rules still make it financially rewarding to own some pure electric cars; if you're looking for something like a Nissan Leaf, BMW i3 or Renault Zoe, then you will still pay no car tax at all.

If you're thinking of a premium electric car like a Tesla Model S, however, then you'll be worse off if you wait, because of the new £310 Premium car supplement.

Some of the hardest hit cars will be low-emission combustion-engined cars and hybrids. Take the Nissan Qashqai, a former What Car? Car of the Year, as an example. Our favourite 1.5-litre dCi N-Connecta version emits just 99g/km of CO2 which, under the current VED system, means you don't have to pay any car tax. If you buy the same car on or after 1 April 2017, however, you'll pay £120 in the first year, and £140 thereafter. Over three years, that's an extra £400.

Vehicles that produce higher emissions and more eco-friendly models with a list price of more than £40,000 are even more severely penalised. So if you were thinking of buying a car with a big diesel engine, such as the Range Rover Sport 3.0 SDV6, you may want to reconsider, because the cost of taxing it for three years is doubling from £815 to £1700. This is because its relatively high emissions mean you have to pay more car tax in the first year, and then the £310 premium fee on top of the £140 standard rate for the following five years.

In contrast to this, cars that were 'dirty' enough to be in the top tax band previously actually work out cheaper if you keep them for more than five years.

What about cars that are already registered?

If you buy your car before 1 April 2017, you won't be affected by these changes because they only apply to cars registered on or after that date. Your car tax will continue to be calculated using the old system of CO2 emissions, meaning that in the vast majority of cases you'll be better off.

So, how much worse off will you be if you buy a car under the new tax system? What Car? has worked out the costs over three years for some of the UK's most popular models. Click through to the next page to view the results.

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